Tokyo’s Olympic win a sign of the times

Upcoming events in emerging markets are making people nervous, as exemplified by the unexpected protests in Brazil this year.

This weekend, the International Olympic Committee handed Tokyo the 2020 summer games. Despite qualms over the mishandling of the Fukushima nuclear power plant, Japan was seen as a safe and reliable choice. It has a track record, with two winter Olympics and co-organisation of a FIFA World Cup under its belt.

This is the first big sporting event to return to developed countries in some time. Although last summer London held a terrific summer Olympic games, a decision that was announced at the conclusion of the 2008 Beijing games, the next three events are in emerging markets: winter games in Sochi and Pyeongchang, and summer games in Rio de Janeiro.

The FIFA World Cup has not been held in a developed country since the 2006 games in Germany. South Africa had its turn in 2010, Brazil is next year, and Russia and Qatar take us through 2022.

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The decisions to take big sporting events to emerging markets has reflected a sensible desire to expand their appeal. There are now far more countries capable of hosting something as complex and expensive as an Olympic games or World Cup tournament – and eager to prove it.

These decisions were also made during the boom years for emerging markets, particularly the Bric nations. It is not a coincidence that China, Brazil and Russia have all hosted or won the right to host global sporting events. It is in keeping with the zeitgeist of the times.

But the emerging market story has been looking a bit shaky of late. While it is definitely too early to proclaim the recovery of the eurozone (sorry Madrid, another loser in the 2020 Summer Games campaign), the US economy continues to expand. Cheap energy, cheap food, immigration and a flexible labour force suggest the US will remain the leading economy for some time yet.

In our own neighbourhood, Japan is shaking off two decades of stagnation. Winning the summer games will give Shinzo Abe a political fillip. He is governing on an agenda of revitalising Japan, politically and economically. “Japan is back” is the unofficial motto in Tokyo these days, and winning an Olympics mandate gives it credibility.

Meanwhile, upcoming events in emerging markets are making people nervous. Underdeveloped infrastructure and the unexpected protests in the run-up to this year’s Latin American soccer competition are vexing Brazil. Vladimir Putin’s Russia risks a boycott of Sochi over how the government treats gays, and also happens to be uncomfortably close to the war in Syria. Sepp Blatter, of all people, recently said maybe giving Qatar a summer sports tournament wasn’t such a great idea.

These sentiments echo what financial markets have already made clear: emerging markets, as an asset class, have peaked. A slowdown in China is affecting resource exporters; the US shale gas revolution is deflating Russian influence abroad; the tragedies in the Middle East underscore a region that has failed to come to terms with the modern world.

Emerging markets are not, of course, homogenous. Every country has its problems; some are more capable of addressing them. Investor sentiment tends to reflect that. But broad market trends can define an era, be it the Japan bubble of the 1980s, the IT bubble of the late 1990s or the Brics story from the mid-2000s until last year. And so can deciding who hosts the world’s greatest sporting events.